PAYE12061 - Coding: coding deductions and expenses: non-PAYE income (Action Guide)

Deciding what to include in code

Steps 1 - 7

Removing non-PAYE income from the code

Steps 8 - 16

1.

Use income, allowances, benefits and deductions for CY and CY+1 to enter total allowances and reliefs

2.

Include in income, allowances, benefits and deductions any PAYE deductions including benefits in kind, state pensions / benefits and any other adjustments

3.

Has the 50 per cent K Code limit been reached or exceeded?

• If it has go to step 4
• If it has not go to step 5

4.

If the 50 per cent K Code limit has been reached or exceeded

• Reduce the amount of non-PAYE income in code (refer to PAYE11096), enter details of income not to be coded in income, allowances, benefits and deductions (PAYE130035) Non Coded income
• If there is an underpayment for earlier years consider collection by another method

5.

If the 50 per cent K Code limit has not been reached or exceeded

• Include any underpayments for earlier years
• Include non-PAYE income up to £10,000 (in deductions)

6.

If 50 per cent K Code limit has now been exceeded you must reduce the deductions to the point at which the 50 per cent limit is not exceeded. To do this

• Firstly reduce the amount of any non-PAYE income coded out, enter excess income details in income, allowances, benefits and deductions (PAYE130035) Non Coded income

And, if not already done, arrange for a self assessment record to be created

• And then if the 50 per cent K Code limit has still been exceeded
• Remove any underpayment coded out and consider collection by a different method

7.

If the 50 per cent K Code limit has not been reached or exceeded and the amount of non-PAYE income exceeds £10,000 and the rate of pay, allowances and reliefs are sufficient to support the inclusion of more than £10,000 in the code

• Advise the individual that we are able to include in the code further deductions in respect of non-PAYE income
• If the individual
• Agrees, increase the amount of non-PAYE income coded out up to the maximum of the 50 per cent K Code limit
• Disagrees, do not increase the amount of non-PAYE income coded out

In cases where the non-PAYE income is removed from the code it will be necessary to update the PAYE Service and SA record.

PAYE Service

8.

Make a Contact History note , recording the individual’s request to have non-PAYE income taxed through SA (include dates and source of income)

9.

Remove the non-PAYE coding items from the coding calculation, enter excess income details in income, allowances, benefits and deductions (PAYE130035) Non Coded income

On SA

If there is no existing SA record

10.

Use SA Function SET UP TAXPAYER RECORD to create a new SA record

• Go to steps 13 - 15

If there is an existing SA record

11.

Use SA Function AMEND TAXPAYER SIGNALS to re-open the ceased record by removing the Last SA Return Required signal

12.

Use SA Function AMEND TAXPAYER SIGNALS to set the Automatic Closure Inhibited Signal

13.

Use SA Function MAINTAIN SA NOTES to record the individual’s request to have non-PAYE income taxed through SA (include dates and source of income), and that this is the reason for the setting of the Automatic Closure Inhibited Signal

14.

Use SA Function MAINTAIN RETURN PROFILE, where necessary, to update the return profile

Note: For cases where the non-PAYE income is removed from the code after the February annual SA return selection has taken place, you will also need to

15.

Prepare a manual return for issue on 6 April

And subsequently

16.

Use SA Function RECORD DATE OF CLERICAL ISSUE to record the issue of the return